Debenhams jumps as Sports Direct mulls cash offer

Mike Ashley's Sports Direct said on Monday night that it was considering a possible cash offer for Debenhams in order to avert a refinancing process by the department store group that could wipe out its 30% stake.

Sports Direct boss Ashley believes the restructuring and refinancing process being pursued by Debenhams "is likely to result in an adverse outcome for Debenhams existing shareholders".

Ashley, who controls Sports Direct and last week offered to buy Debenhams' Magasin Du Nord for £100m in cash, said a cash offer would allow Debenhams shareholders who wish to realise their shareholdings the opportunity to do so

"Sports Direct would seek to run the Debenhams business for the benefit of all of Debenhams stakeholders rather than for the benefit of Debenhams existing lenders," the statement said.

While a bid for the 70% of Debenhams that it does not already own is likely to be solely in cash, Sports Direct said it reserves the right to vary the form and/or mix of any consideration offered.

Having announced its possible offer at 1830 GMT on Monday, Ashley has a deadline for a full offer under UK takeover rules of 22 April, though this date is likely to be moot.

While the department store group said on Tuesday that it will consider any firm offer that is forthcoming, it noted that a takeover "would not, in itself, address Debenhams' immediate funding requirement" and that it will continue talks with its lenders over a £200m cash injection as it seeks to stave off a full collapse.

This new money, it warned last week, designed to give it time to arrange a larger refinancing but could lead to the value of its shares being wiped out completely.

Debenhams shares, which have been heavily shorted, rose 43% to 2.21p in early morning trading.

"With options to engage directly with Debenhams running out, Sports Direct has announced it is considering a cash bid for Debenhams, which sets the clock running," said analyst John Stevenson at Peel Hunt.

"As Debenhams points out in its response this morning, this would not solve the group’s immediate cash needs and the change of ownership clause which would also crystalise the repayment of Debenhams’ current debt. Were Debenhams such a prized asset in UK retail we could understand the attraction, but we can’t help but question whether the cost and effort involved in effecting control will far outweigh any potential returns."

Laith Khalaf at Hargreaves Lansdown said: "This is a sign Mike Ashley isn’t making progress taking control of Debenhams by any other means, and so a takeover bid may now be his last resort. Ashley’s in a race against the clock however, because Debenhams is in the process of refinancing its debt, which will give its creditors even greater control of the company.

"If Mike Ashley wants to make this stick, he needs to come out with an offer pretty quickly, along with a plan to meet Debenhams’ immediate funding needs. It would be nice to think a longer-term strategy for the business might be forthcoming too."

He said Sports Direct may or may not come back with an offer to forestall this, which could ultimately see some value delivered to investors, "but Debenhams remains a high risk investment proposition".